Debt consolidation: do it?
Debt isn’t always a bad thing. Credit and borrowing allows us to buy homes, purchase cars, finance education for ourselves and our children and enjoy special occasions like family vacations and dream weddings.
Paying several different debts, however, can be overwhelming. Debt consolidation can greatly simplify repayment and slice costly interest charges by centralizing your various obligations into one bill.
How are the advantages of debt consolidation?
Consistency. While you’re on a debt consolidation plan, your payment stays the same. This makes budgeting and planning much easier.
Improved credit score. What percentage of your available credit are you using? That number is called credit utilization – and if it’s high (like a maxed-out credit card), that’s bad for your credit rating. Consolidating your debt and lowering your credit utilization can help your credit score.
Lower interest rate. A consolidated loan will likely have a lower interest rate than what you currently pay, particularly with high-interest credit cards. This also allows you to pay off the loan quicker because you are not constantly paying off that extra interest, as well.
What should I know before I apply?
Do you know your credit score? You may not quality for a low-interest debt consolidation loan if you have shaky credit. Make sure consolidation is something you and your credit score can afford. Remember – your bank will do a hard inquiry on your credit when you apply for a loan, and that goes onto your credit report, too.
What is the length of the loan? By consolidating your debt, you still owe the same amount of money – the length of the term is what may be different. Consider how long of a period you’ll be paying. Make sure you have a plan to make the payments.
Make more than a temporary fix. According to Forbes, 70 percent of Americans who take out a home equity loan to pay off credit cards ends up with the same debt within two years. Consolidation should clear your debt, not compound it.
Northwest offers a full line of home equity loans, personal loans and low-interest credit cards that can help you enjoy the relief of debt consolidation. Ready to talk? Call 1-877-672-5678 or visit your local Northwest office to chat with one of our financial experts.